break even point in revenues break even in units sold selling price per pair 244644

3-38 CVP analysis, shoe stores. The WalkRite Shoe Company operates a chain of shoe stores that sell
10 different styles of inexpensive men’s shoes with identical unit costs and selling prices. A unit is defined as
a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a
fixed salary and a sales commission. WalkRite is considering opening another store that is expected to have
the revenue and cost relationships shown here:
1 Unit Variable Data (per pair of shoes) Annual Fixed Costs
2 Selling Price $30.00 Rent $60,000
3 Cost of shoes $19.50 Salaries 200,000
4 Sales commission $1.50 Advertising 80,000
5 Variable cost per unit $21.00 Other fixed costs 20,000
6 Total fixed costs $360,000
Consider each question independently: Required
1. What is the annual breakeven point in (a) units sold and (b) revenues?
A) Break-even point in units = Fixed cost/(Selling price per unit – Variable cost per unit)
$40,000 actually 40,000 units
B) Break-even point in revenue = Break-even point in units* selling price per pair
$1,200,000
2. If 35,000 units are sold, what will be the store’s operating income (loss)?
Contribution per unit = Selling price per unit – Variable cost per unit
$9.00
Total contribution = number of units that are sold* contribution per unit
$315,000
Operating income (loss) = Total contributions of units sold – Total fixed cost
($45,000)
3. If sales commissions are discontinued and fixed salaries are raised by a total of $81,000, what would be
the annual breakeven point in (a) units sold and (b) revenues?
A) Total fixed costs = originally reported fixed costs + the raise in fixed salaries
$441,000
Break-even point in units = Fixed costs/(Selling price per unit – Variable cost per unit)
$49,000 actually 49,000 units
B) Break-even point in revenues = Break-even point in units*selling price per pair
$1,470,000
4. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of
$0.30 per unit sold, what would be the annual breakeven point in (a) units sold and (b) revenues?
A) Total variable cost per pair of shoes if manager is paid a commission of $.30 per unit sold = Orginal variable costs + managers commission
$21.30
Contibution per unit = Selling price per unit – Variable cost per unit
$8.70
Break-even point in units = Fixed costs/(Selling price per unit – Variable cost per unit)
$41,379.31 actually 41,380 units sold
B) Break-even point in revenues = Break-even in units sold*selling price per pair
$1,241,400
5. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission
of $0.30 per unit in excess of the breakeven point, what would be the store’s operating income if
50,000 units were sold?
Total revenue = number of shoes sold * selling price
$1,500,000
Cost of shoes = number of shoes*cost of shoes per pair
$975,000
Sales commission if $.30 per pair*number of shoes sold
$15,000
Operating income
Revenue $1,500,000
Less:
Cost of shoes $975,000
Sales commission $15,000
Total fixed costs $360,000
Total cost $150,000
Operating income $1,350,000

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